ASSOCIATED BANK,* Petitioner, vs. Montano, GR No.

166383

In 1964, spouses Justiniano and Ligaya Montano (the Montanos) owned three (3)

parcels of land situated in Tanza, Cavite with an aggregate area of 590,558 square meters,

more or less,[4] utilized as an integrated farm and as a stud farm used for raising horses.
[5]
Justiniano was then serving as congressman for the lone district of Cavite and as minority

floor leader. In 1972, when then President Ferdinand Marcos placed the country under

martial law, Justiniano went on self-exile to the United States of America (USA) to avoid the

harassment and threats made against him by the dictator.

Sometime in 1975, while still in the USA, the Montanos transferred the said properties

to Tres Cruces Agro-Industrial Corporation (TCAIC) in exchange for shares of stock in the

company,[6] allowing the Montanos to control 98% of the stockholdings of TCAIC. [7] Thus, on

February 17, 1975, the certificates of title registered in the name of the Montanos were

cancelled and were replaced with transfer certificates of title (TCTs) in TCAICs name. [8]

A year later, in October 1976, TCAIC sold the properties to International Country Club,

Inc. (ICCI) for P6,000,000.00.[9] The sale resulted in the cancellation of the titles of TCAIC,

and in their transfer to ICCI on May 27, 1977.[10]

After the transfer, ICCI immediately mortgaged the parcels of land to Citizens Bank

and Trust Co. (later renamed as Associated Bank) for P2,000,000.00.[11] The loan matured but

remained unpaid, prompting Associated Bank to foreclose the mortgage on May 31, 1984.
[12]
The properties were then put on public auction and were sold for P5,700,000.00 to

Associated Bank, the sole and highest bidder.[13] Ownership over the said properties was

consolidated by Associated Bank and, on May 19, 1987, new TCTs were issued in its name. [14]

Meanwhile, in 1986, following the ouster of Marcos, the Montanos returned to the

country. After discovering the transfer of the properties, the Montanos immediately took

physical possession of the same and began cultivating the land. [15] On September 15, 1989,

the Montanos filed an action for reconveyance of title against herein petitioner, praying, in
sum, that the transfer of the properties from TCAIC to ICCI, and from ICCI to Associated

Bank, be declared null and void.[16]

In their complaint, respondents averred that the transfer of the parcels of land to

TCAIC was done only to avoid the confiscatory acts being applied by the dictator against the

Montanos properties, in retaliation for the latters open opposition to Marcos. [17] They claimed

that TCAIC was only forced to sell the properties to ICCI after the latter intimidated and

threatened the relatives of the Montanos who were left in the country. [18] They also argued

that the mortgage by ICCI to Associated Bank was made to generate money for the latters

corporate officers as evidenced by the lack of any effort on the part of ICCI to service the

loan.[19]

On October 11, 1989, Associated Bank filed an Answer [20] setting forth affirmative

defenses. Among its several pleas in avoidance were the arguments that the complaint did

not state a cause of action; that the allegation of threat and intimidation was not averred

with particularity; that the bank was an innocent purchaser for value; and that, even if the

complaint stated a cause of action, the same had already prescribed or had been barred by

estoppel and laches.[21]

On February 17, 1997, eight (8) years after Associated Bank filed its answer and

while the case was still on its pretrial stage, the bank filed a Motion for Preliminary Hearing

on the Affirmative Defenses and/or Motion to Dismiss[22] focused on two crucial points,

namely: that the complaint stated no cause of action; and that the case was already barred

by the statute of limitations.[23]Respondents prayed for and were given an additional 10 days

within which to file an omnibus opposition to petitioners motion. [24]Respondents, however,

failed to meet the trial courts deadline.[25]

On April 4, 1997, the trial court issued an Order [26] dismissing the complaint. In

disposing of the case, the RTC explained:

Now, assuming gratia arguendo the truth of the allegations of the instant
complaint, the question that arises is whether or not this court could render a
valid judgment in accordance with the prayer of the complaint. Surely, in the
absence of controverting evidence when the allegations of the complaint by
reason of the motion to dismiss based on the ground that the complaint states
no cause of action become the gospel truth. Apropos, there is no room for
doubt that this Court could render a valid judgment pursuant to the
complaints prayer. Needless to say, the motion to dismiss based on the
ground that the complaint states no cause of action must necessarily crumble
like a house of cards.

Anent the second ground that the institution of the instant case is barred by
the statute of limitations, this Court finds the same to be meritorious.

An action for reconveyance of real property resulting from fraud may be

barred by the statute of limitations, which requires that the action shall be
filed within four (4) years from the discovery of the fraud (Balbin versus
Medalla, 108 SCRA 666; Alarcon versus Hon. Abdulwahid Bidin, et al., 120
SCRA 390). Under the circumstances of this case, such discovery must be
deemed to have taken place when Transfer Certificate of Title Nos. T-76107,
[T-]76108 and [T-]76109 were issued in the name of Tres Cruces in 1975 and
TCT No[s]. T-90654, T-90655 and TCT No. T-90656 to the properties in the
name of International Country Club, Inc., in 1977, because the registration of
the deeds of sale is considered a constructive notice to the whole world of its
contents, and all interests, legal and equitable, included therein (Ramos
versus Court of Appeals, et al., 112 SCRA 542). Here, plaintiffs waited for a
period of around fourteen (14) years or at least around twelve (12) years from
the date of the issuance of the certificates of title before filing the instant
complaint in 1989.

Besides, it is very clear from Section 35 of the Land Registration Act that
although an original owner of a registered land may seek the annulment of a
transfer thereof on the ground of fraud, such a remedy, however, is without
prejudice to the rights of any innocent value of the certification of title[]
(Medina, et al. versus Hon. Francisco M. Chanco, et al., 117 SCRA 201).

The bottom line is that this Court finds merit in the Motion to Dismiss filed by
defendant Westmont, anchored on the second ground. The cause of action
filed by plaintiffs Spouses Montano for reconveyance of title of the three (3)
parcels of land is a collateral attack on the indefeasible title of Westmont. x x
x.

Parenthetically, this Court, it will not be amiss, to state, finds that the
allegations of threats, intimidation, harassment made by plaintiffs are
couched in general terms contrary to Section 5, Rule 8 of the Rules of Court
which states that in (sic) all averments of fraud, or mistake, the circumstances
constituting fraud or mistake must be stated with particularity.

This Court is not unmindful of the fact that in the various transactions of
plaintiffs and defendants, all were for valuable considerations. The property
for stocks arrangement in 1975 between plaintiffs and Tres Cruces was for the
Montanos taking control of 98% of the stocks of Tres Cruces. The sale in 1977
from Tres Cruces to International Country Club was for six (6) Million Pesos
(P6,000,000.00). The foreclosure of mortgage and consolidation of title in
1987 was due to non-payment of a loan obtained by International Country
Club from the Associated Bank (now Westmont) for which the three (3) parcels
of land stood as security.
 WHEREFORE, premises considered, the Motion to Dismiss is hereby
GRANTED and the instant case is DISMISSED.

Apropos, the Register of Deeds for the Province of Cavite is thereby

directed to cancel the notice of lis pendens annotated in the subject
certificates of title.

SO ORDERED.[27]

Respondents moved for reconsideration, but the trial court denied the same. Upon

appeal, the CA, on October 27, 2003, reversed the RTCs ruling and reinstated the case for

further proceedings. The appellate court ratiocinated:

The trial court discusses the issue as if it is an established fact that the
bank was a buyer in good faith and without prior notice of the adverse
interests of the plaintiffs in the properties. We really do not know this until trial
is held and evidence presented. That is why it is necessary that the parties be
heard. The court fails to follow the basic and simple rule that in resolving a
motion to dismiss based on insufficiency of the complaint, it must
hypothetically admit the facts alleged. Perpetual Savings Bank vs. Fajardo 223
SCRA 720, State Investment House vs. Court of Appeals 206 SCRA 348. At this
stage, the subject of determination is the sufficiency of the allegations of the
complaint to test which it (sic) is only necessary to ask whether, assuming
they are true, the facts alleged are sufficient to grant relief. Calalang vs.
Intermediate Appellate Court, 194 SCRA 514, Madrona vs. Rosal 204 SCRA 1. If
the bank had actually conspired with others to manipulate procedures to put
the title out of reach of the plaintiffs, as alleged in the complaint, it is beyond
peradventure that the court can render valid judgment in accordance with the
prayer therein. It is not only a right but becomes the duty of the court to
proceed to hear and adjudicate the case on its merits.

IN VIEW OF THE FOREGOING, the order of the trial court dismissing the
case is SET ASIDE. The case is returned to the court of origin for further
proceedings.

SO ORDERED.[28]

Associated Bank moved for reconsideration, [29] arguing that the cause of action of the

Montanos, if there had been any, had already prescribed. It also pointed out that the failure

of the Montanos to file a comment on or an objection to the motion to dismiss despite

opportunity to do so should be construed as a waiver in contesting the allegations and

affirmative defenses raised by Associated Bank. The CA, however, in its Resolution [30] dated

December 13, 2004, denied the motion for reconsideration.

 Petitioner now comes to this Court raising, in essence, two issues: first, whether it is

proper to file a motion to dismiss after an answer has already been filed; and second,

whether the complaint should be dismissed on the grounds set forth therein.

We find in favor of respondents.

I. On the propriety of the motion to dismiss

Section 6, Rule 16 of the Rules of Court provides: “Pleading grounds as affirmative

defenses. If no motion to dismiss has been filed, any of the grounds for dismissal provided

for in this Rule may be pleaded as an affirmative defense in the answer and, in the discretion

of the court, a preliminary hearing may be had thereon as if a motion to dismiss had been

filed”

The dismissal of the complaint under this section shall be without prejudice to
the prosecution in the same or separate action of a counterclaim pleaded in
the answer.

The rule is based on practicality. Both the parties and the court can
conveniently save time and expenses necessarily involved in a case
preparation and in a trial at large, when the issues involved in a particular
case can otherwise be disposed of in a preliminary hearing. [31]

Since the rule provides that the preliminary hearing may be had thereon as if a

motion to dismiss had been filed, such hearing shall therefore be conducted in the manner

provided in Section 2, Rule 16 of the Rules of Court, [32] which reads:

SEC. 2. Hearing of motion. At the hearing of the motion, the parties shall
submit their arguments on the question of law and their evidenceon the
questions of fact involved except those not available at that time. Should the
case go to trial, the evidence presented during the hearing shall automatically
be part of the evidence of the party presenting the same.

It is, therefore, inconsequential that petitioner had already filed an answer to

the complaint prior to its filing of a motion to dismiss. The option of whether to
set the case for preliminary hearing after the filing of an answer which raises
affirmative defenses, or to file a motion to dismiss raising any of the grounds
set forth in Section 1, Rule 16 of the Rules are procedural options which are
not mutually exclusive of each other.
 Moreover, as petitioner correctly pointed out, respondents failed to oppose the

motion to dismiss despite having been given the opportunity to do so by the RTC. Therefore,

any right to contest the same was already waived by them.

II. On whether the complaint for reconveyance should be dismissed

We agree with the RTCs and the CAs rulings that petitioners argument on the failure

of the complaint to state a cause of action is unavailing. When the ground for dismissal is

that the complaint states no cause of action, such fact can be determined only from the

facts alleged in the complaint and from no other, and the court cannot consider other

matters aliunde.[33] The test, therefore, is whether, assuming the allegations of fact in the

complaint to be true, a valid judgment could be rendered in accordance with the prayer

stated therein. Where the allegations are sufficient but the veracity of the facts is assailed,

the motion to dismiss should be denied.[34]

In their complaint for reconveyance, respondents alleged that the transfer of the

three parcels of land from TCAIC to ICCI was facilitated through threat, duress and

intimidation employed by certain individuals. On its face, the complaint clearly states a

cause of action and raises issues of fact that can be properly settled only after a full-blown

trial. On this ground, petitioners motion to dismiss must, perforce, be denied.

We do not, however, subscribe to the RTCs ruling that the action has already

prescribed.

It is true that an action for reconveyance of real property resulting from fraud may

be barred by the statute of limitations, which requires that the action shall be filed within

four (4) years from the discovery of the fraud. [35] The RTC, however, seemed to have

overlooked the fact that the basis of respondents complaint for reconveyance is not fraud

but threat, duress and intimidation, allegedly employed by Marcos cronies upon the relatives

of the Montanos while the latter were on self-exile. [36] In fact, fraud was neither specifically

alleged nor remotely implied in the complaint. Article 1391 of the Civil Code provides:

Art. 1391. An action for annulment shall be brought within four years.
 This period shall begin: In case of intimidation, violence or undue influence,
from the time the defect of the consent ceases.

In case of mistake or fraud, from the time of the discovery of the same.

And when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases.

In the circumstances prevailing in this case, the threat or intimidation upon

respondents is deemed to have ceased only upon the ouster of then President
Marcos from power on February 21, 1986. The four-year prescriptive period
must, therefore, be reckoned from the said date. Thus, when respondents filed
their complaint for reconveyance on September 15, 1989, the period provided
for by law had not yet prescribed. Therefore, petitioners motion to dismiss
should be denied.

WHEREFORE, premises considered, the instant petition is DENIED for lack of merit.

The Regional Trial Court is ordered to proceed with the trial of the case with dispatch. Costs

against petitioner.